Responsible Behavior of the Firm

This study postulates that the inconclusive relationship between social and financial performance may be based on different motivation to engage in corporate social responsibility (CSR). As an unexplored dimension of the motivation for CSR actions, we propose the aspect that firms seek for enhancing ethical status, called conspicuous CSR. Drawn from the theory on conspicuous consumption (Veblen, 1899), we explore the possibilities that firms may spend their resources for society to reveal their ethical status. This implies that firms are likely to engage in CSR to advertise their CSR status. From this standpoint, we attempt to discern the behavioral aspect that a firm’s prosocial activities are dependent on its prior ethical status. And we investigate how different motivations, i.e. strategic CSR vs. conspicuous CSR, affect financial performance, especially instantiated by Tobin’s q. With a sample of 1,665 U.S. public firms between 1993 and 2012, we find that conspicuous CSR has a negative impact on market performance while strategic CSR has a positive impact. We expect that these findings can reconcile the inconclusive debate on the CSR-CFP relationship.